De Luz Homes v. County of San Diego

• Decision Date: 25 November 1955
• Docket Number: No. 1,No. 2,1,2
• Citation: 290 P.2d 544,45 Cal.2d 546
• Court: California Supreme Court
• Parties: DE LUZ HOMES, Inc., a corporation, Plaintiff and Respondent. v. COUNTY OF SAN DIEGO, a Body Corporate and Politic, Defendant and Appellant. WIRE MOUNTAIN HOMES, Inc.,, a corporation, Plaintiff and Respondent, v. COUNTY OF SAN DIEGO, a Body Corporate and Politic, Defendant and Appellant. WIRE COUNTAIN HOMES, Inc.,, a corporation, Plaintiff and Respondent, v. COUNTY OF SAN DIEGO, a Body Corporate and Politic, Defendant and Appellant. DE LUZ HOMES, Inc., a corporation, Plaintiff and Respondent, v. COUNTY OF SAN DIEGO, a Body Corporate and Politic, Defendant and Appellant. L. A. 23564, 23656.

Page 544

290 P.2d 544

45 Cal.2d 546

DE LUZ HOMES, Inc., a corporation, Plaintiff and Respondent. v. COUNTY OF SAN DIEGO, a Body Corporate and Politic, Defendant and Appellant.

WIRE MOUNTAIN HOMES, Inc., No. 1, a corporation, Plaintiff and Respondent, v. COUNTY OF SAN DIEGO, a Body Corporate and Politic, Defendant and Appellant.

WIRE COUNTAIN HOMES, Inc., No. 2, a corporation, Plaintiff and Respondent, v. COUNTY OF SAN DIEGO, a Body Corporate and Politic, Defendant and Appellant.

DE LUZ HOMES, Inc., a corporation, Plaintiff and Respondent, v. COUNTY OF SAN DIEGO, a Body Corporate and Politic, Defendant and Appellant.

L. A. 23564, 23656.

Supreme Court of California, In Bank.

Nov. 25, 1955.

Rehearing Denied Dec. 21, 1955.

James Don Keller, Dist, Atty., San. Diego, and County Counsel, and Carroll H. Smith, Deputy County Counsel, San Diego, for appellant.

Joel E. Ogle, County Counsel (Orange County), George F. Holden and Stephen K. Tamura, Deputy Counsel, Santa Ana, as Amici Curiae on behalf of appellant.

Holbrook, Tarr, Carter & O'Neill, W. Summer Holbrook, Jr., Francis H. O'Neill, Los Angeles, Alexander W. Rutan, Santa Ana, and Robert A. Oakes, San Diego, for respondents.

TRAYNOR, Justice.

Actions to recover taxes, levied against possessory interests in tax exempt land and improvements and paid under protest, were brought against the County of San Diego, Revenue & Taxation Code, §§ 5103, 5138, in 1953 by De Luz Homes and in 1954 by De Luz Homes, Wire Mountain Homes No. 1 and Wire Mountain Homes No. 2. The county appeals from judgments in favor of plaintiffs and from orders remanding the proceedings to the county board of equalization. The 1953 and 1954 actions raise the same substantive question and have been consolidated on appeal.

De Luz Homes is a 562-unit housing project located on land owned by the United States Government at Camp Pendelton, a military installation in San Diego County. The project provides housing for military and civilian personnel stationed at the camp at maximum rentals prescribed by the Federal Housing Administration and the Department of the Navy and was constructed under the provisions of Title VIII of the National Housing Act (12 U.S.C.A. §§ 1748-1748h (known as the Wherry Act)) and section 522a of Title 34 of the United States Code Annotated. Title VIII provides, 'In order to assist in relieving the acute shortage of housing which now exists at or in areas adjacent to military installations * * * and to increase the supply of rental housing accommodations available to military and civilian personnel at such installations, the (Federal Housing) Commissioner is authorized * * * to insure mortgages * * * (on) property * * * designed for rent for residential use by civilian or military personnel of the Army, Navy, Marine Corps, or Air Force * * * assigned to duty at the military installation at or in the area of which such property is constructed.'* 12 U.S.C.A. § 1748b(a), (b)(2); see, Senate Report on Military and Naval Installations Construction, 82d Cong., 1st Sess., Sen.Rep. No. 727. Section 522a of Title 34 of the United States Code Annotated authorizes the Secretary of the Navy to lease property under the control of the Department of the Navy whenever it shall be advantageous to the government.

In July, 1952, the United States Government, acting through the Secretary of the Navy, leased a single parcel of 95.22 acres at Camp Pendleton to De Luz Homes, Inc., a Delaware Corporation, for a period of 75 years at an annual ground rental of $100. The lease, as amended, states that the Secretary of the Navy has determined that lease of the premises will effectuate the purpose of 'erecting, maintaining, and operating thereon a housing project, consisting of approximately 562 units, substantially in accordance with detailed plans and specifications submitted by the Department of the Navy * * * and approved by the Federal Housing Commissioner.' In addition to building and equipping the project and paying the ground rental, the lessee is required to obtain mortgage insurance from the Federal Housing Administration, to lease the units at rents specified by the Federal Housing Administration and the Department of the Navy to persons designated by the commanding general of the camp, to maintain the premises for the term of the lease, to provide protection against fire and other losses, and to 'pay to the proper authority, when and as the same become due and payable, all taxes, assessments, and similar charges which, at any time during the term of this lease, may be taxed, assessed or imposed upon the Government or upon the Lessee with respect to or upon the leased premises.' The Government promises to provide 'when and as available' fire and police protection on a nonreimbursable basis and has reserved rights of inspection and a right of way to connect the project with the school site adjoining it. The buildings and other improvements erected by De Luz became the property of the United States as they were completed, and all ranges, refrigerators, and other items required by the plans must remain on the premises and will become the property of the United States after the mortgage debt is paid. Under its contract of mortgage insurance with the Federal Housing Administration, the lessee is required to pay an annual insurance premium, to insure the improvements against fire and other losses, and to accumulate a fund for replacing worn-out improvements and equipment. Under the terms of the lease, the lessee must continue to insure and to accumulate a replacement reserve for the remainder of the lease after the mortgage debt is paid. The lease cannot be transferred or assigned by De Luz without written approval of the Government, but may be terminated by the Government upon sixty days' notice in the event of default by De Luz in the payment of the annual ground rental or accumulation and maintenance of the replacement reserve, or, irrespective of default, after fifty years from execution of the lease.

De Luz, at its sole expense, had 562 housing units constructed in accordance with the plans drawn by the Department of the Navy and installed therein ranges, refrigerators, screens, shades, and other items designated in the plans. Construction of the entire project cost somewhat in excess of $4,516,000, and to finance it De Luz borrowed from the Republice National Bank of Dallas, Texas, approximately $4,600,000, at 5% per year, payable in full thirty days after completion of the project. After the project was completed, De Luz refinanced the loan by borrowing from the First National Bank of Boston approximately $4,516,000, at 4% per year and repayable in fixed annual installments, including interest, of $248,388. The installment payments began on February 1, 1954, and will continue thereafter for 32 years and eight months until 1986. To secure the loan, De Luz gave the bank a mortgage on its leasehold interest and, as required by its lease, purchased a mortgage insurance policy from the Federal Housing Administration.

All net income from subrentals becomes the property of De Luz, and the company estimates that its maximum potential gross income, assuming 100% occupancy, is $552,354 per year. It forecasts, however, that after making a 20% allowance for vacancies and paying $27,967 into the replacement reserve, $251,271 for maintenance and operating expenses, and $248,388 in payment of its loan, it will expend $55,238 annually in excess of income until its mortgage debt is repaid. After 1986, however, when it will have repaid the loan, it expects income to exceed disbursements by $214,762 per year. ¹ The Federal Housing Administration estimates that at 100% occupancy De Luz would receive a gross income of $554,980 per year, and that with a 3% vacancy allowance and deductions of $156,401 for operating expenses, $27,967 for accumulation of the replacement reserve, and $38,400 for taxes, but without a deduction for repayment of the loan, De Luz will receive an annual net income of $305,862.

On Monday, July 20, 1953, after the regular assessment period for the tax year 1953-1954, Rev. & Tax.Code, § 405 and during the period for equalization, Rev. & Tax.Code, § 1603, De Luz appeared by counsel before the Board of Supervisors of San Diego County sitting as a board of equalization. It stated that De Luz Homes had not been assessed, that it waived the five day notice to which it was entitled by statute, Rev. & Tax.Code, § 1611, and that it petitioned the board 'to add an assessment of a possessory interest to the De Luz Homes * * * the same being exempt property of the United States, and the assessment to be of a possessory interest therein with a full cash value of $40,350.00.' The assessor objected, stating that he had not been able to assess De Luz because of insufficient information as to personal property on the premises, that his office had delayed the assessment to give the taxpayer sufficient time to gather information, and that his office had 'not had any cooperation from the taxpayer.' The board denied the petition by De Luz with the understanding that as soon as the assessor obtained a full statement of personal property the entire assessment would be put on the roll. On July 31, 1953, the assessor entered an assessment of De Luz for the tax year 1953-1954 at a valuation of $86,690 for the possessory interest in land, $487,380 for the possessory interest in improvements, and $61,380 for personal property, and he levied taxes thereon totalling $35,013.29. De Luz filed an application with the board to reduce the assessment, Rev. & Tax.Code, §§ 1604, 1607, and on August 24, 1953, the board held a hearing, received oral and written evidence, and denied the application. De Luz thereupon paid the full amount of the levy, filed a protest contending that $29,738.57 of the tax was excessive and void, and filed an action to recover the allegedly excessive amount and for revaluation of its...